In the last post, we examined the potential impact of the recently released draft Regulation on the Implementation of the Food Safety Law of the P.R.C. ("draft Regulation").¹ Following up on our last post, we now shift our focus to the regulation of domestic food production and related operations under the amended draft Regulation.

Chapter IV of the draft Regulation details the obligations and responsibilities of food producers and operators throughout the commercial chain.² The draft Regulation clarifies issues surrounding Food Production and Operation License (Chapter I); and details requirements for effective Production and Operation Control (Chapter II). The draft Regulation specifies the responsibilities of Restaurant Service providers (Chapter III). In addition, the Chinese authorities have provided greater details on the regulation of Edible Agricultural Products (Chapter IV).³  Furthermore, to ensure proper traceability of food products, the draft Regulation also requires food producers and operators to properly conduct Recordkeeping (Chapter V) across all phases of their business. We look at each of these issues in turn below.

I.   Food Production and Operation License

The Food Safety Law explicitly mandates a licensing regime for food production and operation activities, respectively (distinctions between these two licenses are explained in the following alert: China's Food Safety Law Takes Effect Today: Are You Ready?) The draft Regulation further clarifies whether certain more novel distribution models are subject to this licensing regime. For example, the draft would require a food operation license prior to engaging in food distribution via phone, conferences or seminars, whereas no such license is needed to distribute food at the place of production, provided the facility has an effective food production license in place.⁴

The draft Amendment specifically states that online food retailers must operate within the limits of their Chinese business license scope just as is the case for brick and mortar stores.⁵ For example, if the company's business license only permits marketing of confectionary products, the company would not be permitted to engage in online trading of alcoholic beverages. Notably, the draft Regulation also mandates that online retailers provide its URL and IP address to the local food and drug administrative department (which issues the business license) within 30 working days of obtaining network access.⁶

II.   Food Production and Operation Control

To ensure effective enforcement, the draft Regulation notes that the legal representative or chief responsible person at the company will bear full responsibility for food safety related issues.⁷ Such responsibility can be delegated to food safety management personnel only for certain designated aspects of the business (e.g., product entry/exit inspection, food recalls, etc.).⁸ Failure to establish adequate internal controls that result in a food safety incident may constitute a serious violation under the draft Regulation.⁹Food producers/operators can authorize a third-party organization to assist with mandatory food safety evaluations for the business.¹⁰ For example, food, food additives and food related products must be inspected to confirm compliance with pertinent national Food Safety Standards. However, such inspection and testing can be delegated to an accredited third party. Recalls of unsafe food are classified into the following three levels based upon the potential safety risk involved, with each level subject to a strict deadline to initiate and complete the recall:¹¹

          (1)   Level I Recall: Foods have or may lead to serious health damage
          or death. Recalls are to be conducted within 24 hours.
          (2)   Level II Recall: Foods have led to or may lead to ordinary health
          damage. Recalls are to be conducted within 48 hours.
          (3)   Level III Recall: Foods with non-compliant labels or instructions involving no
           health damage. Recalls are to be conducted within 72 hours.

The draft Regulation also contains various provisions on "recycled food." This term is not defined in the draft Regulation, but should be interpreted (based on other regulations)¹² to capture food recalled for safety reasons and potentially other foods. The draft requires that food businesses record and store recycled food products in clearly marked areas, and prohibits the use of recalled food additives to produce/process food additive products.¹³ Where food or food additives have been recalled, the company must dispose of the material in a timely manner and document the reason for the recall.

The draft Regulation also requires that companies establish a public information disclosure system with information on the company's production/operation license, food enterprise standard, risk classification symbol, inspection results, food recalls, etc.¹⁴ We expect the Government to provide more details in the future with regard to the disclosure method and scope of inspection results subject to this requirement.

The draft Regulation makes clear that food producers are responsible for ensuring compliance with the enterprise standard they notify to authorities.¹⁵ However, failure to comply with labeled enterprise standard can give rise to a corrective order or civil liability.¹⁶

III.   Restaurant Service

The draft Regulation proposes the establishment of a national Food Safety Standard governing the use of food additives in restaurant.¹⁷ The name, use level and scope of use for food additives in restaurants would become subject to mandatory public disclosure.¹⁸ In the current system, only restaurants which self-produce "hot pot" condiments, beverages or seasonings are required to make such disclosures (on the menu or shown prominently in the restaurant).¹⁹ Failure to publish such information can negatively impact the restaurant's record and subject it to more frequent government inspection and lower ranking under China's domestic restaurant management system.²⁰ The restaurant service provider is still the responsible person for food safety risk even if it contracts a service company for cleaning and sterilization services.²¹

IV.   Edible Agricultural Products

As "Edible agricultural products" is a newly referenced term under the amended Food Safety Law,²²and the draft Regulation provides guidance on how such products are regulated. Such products cannot be distributed via centralized trading market until compliance testing is carried out, except where other supporting documentation is readily available (e.g., certificate of place of origin, purchase record and certificate of conformance). For imported agricultural products, the certificate of inspection and quarantine must be provided.²³Testing (per the corresponding food risk level) should be conducted regularly by the wholesaler or accredited third party testing entities. Contact information for the local agent along with other product information must be kept on file for at least 6 months.²⁴ Companies selling unpacked agricultural products must prominently display product information (e.g., product name, place of origin, producer/distributor name).²⁵

V.   Recordkeeping and Traceability

In addition to requiring that proper records be kept at all stages of food production and operation, the draft Regulation also specifies requirements particular to companies engaged in food storage and transportation,²⁶ handling food additives,²⁷ online food trading,²⁸ as well as imported agricultural food. ²⁹For example, online food retailers must store information on companies that distribute food, edible agricultural products and food additives on its platform.

_{¹ http://www.sda.gov.cn/WS01/CL0050/137340.html
² "Food operation", per Article 2 of the Law, includes both food distribution and restaurant service.
³ Article 195, "edible agricultural food" is defined as "plants, animals, microorganism and their related products which are obtained during the agricultural activities of plantation, farming, picking-up, fishing, protected agricultural, biological engineering and so on, and formed after the preliminary processing procedures, like sorting, shelling, peeling, smashing, cleaning cutting, freezing, waxing, classification, packaging and so on, but their basic natural properties and chemistry nature is not changed." This would include fresh fruit sold by weight.
⁴       Article 33
⁵       Article 61
⁶       Article 62
⁷       Article 39
⁸       Article 40
⁹       Article 175 (2)
¹⁰      Article 42
¹¹      Article 65
¹²    "Recycled food" is defined in Notice 619 of 2006 by the Administration of Quality Supervision, Inspection and Quarantine (AQSIQ). See Notice on Strict Prohibition on Using Recycled Food as Raw Materials for Production in Food Production and Processing (《关于严禁在食品生产加工中使用回收食品作为生产原料等有关问题的通知》（国质检食监〔2006〕619号）), available at http://www.sda.gov.cn/WS01/CL1601/91953.html. The AQSIQ notice describes four scenarios that would be classified as "recycled food", including not only recalled foods, recollected food, food returned by downstream distributors, as well as food detained/confiscated by the authorities.
¹³    Article 32
¹⁴    Article 44
¹⁵   Article 30; some local governments have issued guidelines for the notification of enterprise standards. For example, Notice on the Publication of Provisions on the Notification of Food Safety Enterprise Standards of Shanghai (Provisional), http://www.wsjsw.gov.cn/wsj/n429/n432/n2354/n2362/u1ai134129.html
¹⁶    Article 179
¹⁷    Article 27, see also国家食药总局召开餐饮服务环节使用食品添加剂座谈会, available at http://www.ccas.com.cn/Article/HTML/107422.html
¹⁸    Article 53
¹⁹    Article 42, Operating Procedure for Food Safety in Restaurant Service (《餐饮服务食品安全操作规范》), China Food and Drug Administration (CFDA), http://www.sda.gov.cn/WS01/CL0851/65144.html
²⁰    Article 10 and 11, Notice on Printing the Administrative Provisions for the Credit Information of Food Safety Supervision of Restaurant Service Unit (《餐饮服务单位食品安全监管信用信息管理办法》), http://www.sda.gov.cn/WS01/CL0851/67813.html
²¹    Article 58
²²    According to Article 2 of the Law, the safety and quality management of edible agricultural products shall still follow the Agricultural Product Quality Safety Law of the People's Republic of China.
²³    Article 71
²⁴    Article 73
²⁵    Article 72
²⁶    Article 52
²⁷    Article 59
²⁸    Article 64
²⁹    Article 73}